Health benefit payers, including Medicare, are limited to use of those internal and external code sets identified in the implementation guides (IG) adopted as standards for national use under the Health Insurance Portability and Accountability Act (HIPAA) when using those transactions. The X12 835 remittance advice and 837 COB IGs require that a group code that assigns financial responsibility for a non-paid amount be reported in conjunction with applicable claim adjustment reason codes that explain why a payment is less or more than the amount billed for a claim or service. Although HIPAA does not apply to paper transactions, CMS requires that SPR transactions that contain fields that correspond to 835 data elements adhere to the same requirements that apply to those 835 data elements. Medicare FIs have reported group and reason codes for many years, but were not previously required to follow uniform guidelines in assignment of group codes to particular reason codes. These group and reason code combinations were the product of an FI, FI Shared System (FISS) maintainer, and CMS work group.

Medicare contractors are permitted to use the following group codes:

CO Contractual Obligation (provider is financially liable);

CR Correction and Reversal (no financial liability);

OA Other Adjustment (no financial liability); and

PR Patient Responsibility (patient is financially liable).

A provider is prohibited from billing a Medicare beneficiary for any adjustment amount identified with a CO group code, but may bill a beneficiary for an adjustment amount identified with a PR group code. For example, reporting of reason code 50 with group code PR (patient responsibility) on the remittance should reflect:

1) the beneficiary received an ABN,

2) the beneficiary knew that Medicare would not cover the item or service in this particular situation because it was "not reasonable and necessary",

3) the beneficiary requested receipt of the item and/or service, and

4) the beneficiary agreed to pay for the item and/or service if it ultimately was denied coverage by Medicare.

If the provider did not deliver an ABN to a beneficiary for a service that is "not reasonable and necessary", the beneficiary could not be held liable, and group code PR must not be used. Once the item and/or service is denied as “not reasonable and necessary”, the provider would be liable for the item and/or service, and group code CO must be used.